Can a government agency successfully compete with private contractors and provide cost-effective services? Orange County, California, the second most populous county in the state, has proven it’s not only possible, but has delivered key infrastructure services to the City of Lake Forest for more than a ½ million dollars less than the nearest competitor! So how did Orange County accomplish this challenging task? Let’s first provide some background information

OVERVIEW

The Public Facilities and Resource Department (PFRD), part Orange County Public Works Operations, has provided road maintenance support since the early 1990s for a number of newly incorporated cities, which contracted with the County to provide these services until they could develop the necessary infrastructure and support systems. Recently, one of the cities, Lake Forest, decided that in addition to the County, they would request bids from private service providers.

PFRD is responsible for maintaining approximately 1,700 lanes of roadway and 300 miles of channels for Orange County. PFRD has a well-developed and successful management system for work identification, planning, organizing, scheduling and controlling maintenance. In fact, PFRD, a pioneer in the use of microcomputer systems, was one of the first agencies to use an automated microcomputer based Maintenance Management System (MMS) computer system in the United States. This system and the County’s expertise in roadway maintenance and infrastructure planning have been highly successful and have been utilized to establish a continuous improvement process.

The advent of several new contract cities in Orange County in the late 1980s - Mission Viejo, Lake Forest, Laguna Niguel, Dana Point and Laguna Hills - impacted the way the County performed maintenance. County maintenance staff had to service cities with different views of response and service levels. The process evolved and the County lost one of its contracts and began to realize that it must develop a “service orientation.” Through several adjustments and staff changes this was accomplished.

Although Lake Forest, one of the cities, was satisfied with the County’s assistance for roadway maintenance provided since 1992, they wanted to assure they were getting the best utilization of the public dollar. A complete evaluation of the County’s support was conducted by the City in May 1997, and submitted in a report to the City Council. The report on the quality and efficiency of the County’s work was most positive. In fact, in the report, the Director of Public Works for Lake Forest stated: “ The program history is that the city received increasingly better services for decreasing fewer dollars” and “Maintenance service levels provided to the city have increased steadily as the work programs costs have decreased.”

However, the council decided to look at other options for providing service. Three options were reviewed – continue with the County, establish a city “in-house” capability, or competitively contract. The “In house” option was eliminated because of the large startup cost for equipment and staffing. The City decided to investigate the competition option’s viability and yet not exclude the potential use of the County. Hence, the City gave the County a twelve-month termination notice on their existing five-year contract and the bidding process for the maintenance work was opened to private contractors as well as to the County.

Lake FOREST BID process

The City retained the consulting firm of Wildan & Associates to prepare the bid specifications for this unique process as well as to provide services through the contract award. The City also solicited comments from various public and private agencies to insure a complete bid document was prepared.

The final document divided all maintenance work into a series of 37 activities with estimated quantities, unit of measure, definition, and required service level and performance criteria. Figure one depicts one of the 37 activities. The City utilized past records to estimate the quantities of work for each activity. Furthermore, to insure that emergencies were covered in the bid -- a series of scenarios were included in which the bidders had to estimate cost, based on various types of labor and equipment. These included landslides, sinkholes, channels, and windstorms.

In going though this process, considerable discussion was conducted at the council level to determine if the City would be better served by not using a unit price bid. Instead, it was proposed to use a "professional-services contract" where qualifications are the basis of selection, then, after the selection has already been made, negotiate a contract dollar amount. This process, known as Qualifications Based Selections (QBS) is required by local governments for professional services such as engineering design in California and many other states. Though price can be considered, it is only one factor in the process. After much discussion it was decided that a bid process would be most appropriate as:

Certain city ordinance requires bidding for public projects and many of the services (curb & gutter, stripping, sidewalk, etc.) were defined as such. Moreover, it appeared that portions of the work meets the California code for Public Works Bidding.

Best method for labor intensive and general support services is bidding.

Allows for competition for non-professional services.

Although maintenance requires skill, the work is not a professional level service and requires little professional judgment.

The agreed process and specifications are then completed by the City’s consultant and accepted by the council. The Director of Public Works advertised the bid, held a pre-bid conference and received bids. Prior to the receipt of bids all interested parties were required to submit general references which were confirmed by the City.

BIDS

The City received four bids, three from contractors, or teams of contractors, and one from the County (about 30 percent of the County’s bid included private sector subcontractors).

The County’s bid of$5.13 million was 11 percent lower than the next closer bid and 67 percent lower than the highest. The other bids ranged from $5.88 to $8.88 million. The County’s bid included nonproductive pay, fringe benefits, office supplies, building utilities, etc. Additionally, an amount was included for self-insurance, and an estimate was provided for the performance and labor bonds. An overhead factor was applied to all contract-bid items to account for County administrative cost managing these efforts.

The County bid was recommended to be accepted by, Wildan & Associates and the City’s Director of Public Works. The City council decided to retain the County services until fiscal year 1999-2000.

How did the County do this?

Over the past five years of working Lake Forest has gotten more with less cost from the county. The actual dollar effort of road maintenance has been reduced over the last four years from $870,000 to the current proposed budget of $735,000 for FY 96-97, as shown below.

The level of maintenance service provided to the City has increased steadily as the budget has decreased. The actual person-hours of effort performing the work has increased each year, with the overall weighted average hourly rate decreasing 39 percent from $31.41 to $19.10. This overall rate of $19.10 is extremely competitive with both private and public rates. The County support is a combination of staff stationed at the City office and those from the County yards.

In addition to this improvement, the actual County multi-year bid $5.13 million included$713,000 for 97-98 year that is 3 percent lower than the 96-97 budget.

Reasons for Successful bid

There were a number of reasons why the County won the bid. For years, Orange County has implemented regular reviews of its services. Each activity is evaluated and those that are more cost-effective for contractors to handle are outsourced. By constantly updating these reviews, the County can easily determine which services are best administered by County employees. For example, street sweeping, tree trimming, concrete sidewalk replacement and large asphalt projects requiring specialty equipment and low work volume were best managed by local contractors. Conversely, it was more effective to utilize County staff for tasks such as weed spraying, stripping and stenciling because the County already owned the expensive equipment necessary for these projects and the large workloads associated with them warranted the costs and labor.

In addition, the County has previously initiated other proactive steps that both directly and indirectly allow for competitive estimates. These include:

100 % assignment of a full-time, two-person County crew that works in Lake Forest with a full-time inspection staff. This allowed for quick response and a “jack of all trades” approach to minor and response maintenance.

Assignment of supervision and inspection staff in Lake Forest. A cross-trained staff who could make on-site decisions and obtain needed resources allowed the County staff to function as City staff and provide quick response.

Use of inmate or court-ordered community workers to perform the majority of manual labor at rates of less than$1.45/hour. This allowed for competitive low-cost labor to be used for non-trade tasks.

Application of new techniques and technology, such as a hot-air lance for crack sealing, which increased productivity by over 30 percent. This allowed for non-routine tasks to be done more competitively.

Immediate availability of expensive specialty equipment for activities such as pavement striping, resulting in a low unit cost. This equipment is used only as needed by Lake Forest and the setup and travel costs are low because the County has other work in the area and can use economies of scale.

Use of a private consultant by the County to manage and monitor their annual plan for the City. A business approach and attitude, along with activity-based costing was used to establish a baseline for work that allows for improvement in each activity.

Conclusion

Orange County is able to provide quality services to its citizens and contract cities. The recent bid process has now shown that the County, with its team of contractors, can be the most cost-effective provider to service a city.

Orange County has learned to listen to the city (client) and learn by observing others, such as private contractors, and, from its past mistakes with other cities. A consultant was used to help the County use a business-like approach, and to make logical decisions as to when it should use outsource projects or keep them in-house. A combination of both proved in the Lake Forest case, to be the most cost effective.

As government often does, continual ways to provide services are still being investigated by the City. Lake Forest has decided to retain the County until fiscal year 1999-2000 and is considering repeating this bid process at that time. The County staff is confident, that given the opportunity to bid -- based on quality and effectiveness of work, they can compete. Through a continual effort to improve, as well as listening to the client, the County has demonstrated that the quality of roads can be improved while costs are lowered. If future decisions are based on “the best service for the best dollar value,” Orange County can successfully serve cities like Lake Forest.

William Reiter is Manager – Public Works Operations, Orange County, CA. Harry Lorick is principal of Lorick Associates Consulting, a Manhattan Beach, CA-based consulting firm providing planning and systems & technology services applied to public agencies and municipalities, with an emphasis on systems implementation and technical support for public works operations and maintenance. For more information on this topic, please contact Mr. Reiter at (714) 567-6300; and Mr. Lorick at (310) 798-2998.